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November 04, 2015 at 04:23 AM
Political analyst Greg Valliere says this “a great time to do what I do.” In fact, the expert believes today’s political events are unlike anything he’s seen before.
“It’s like 13 unassisted triple plays in baseball right now,” said Valliere on Monday during the Financial Advisor Summit 2015 in Washington, which was hosted by the Financial Services Institute and drew about 150 advisors and 150 other guests.
Specifically, the chief global strategist at Horizon Investments says it is odd to have institutional investors “begging” for the Federal Reserve to raise interest rates, Minority House Leader Nancy Pelosi as “the most powerful player of them all” in Congress, and the leadership of both political parties “scared to death of the presidential front-runners.”
Looking out to the 2016 elections, Valliere says it is likely to be a contest between Hillary Clinton and Marco Rubio, or possibly Ted Cruz or even Ben Carson.
The Markets
“It’s safe to say that the vast majority of professional investors are tired of ‘will they or won’t they’,” he said, referring to a 0.25% hike in the federal funds rate. “I agree with economist Larry Meyer. Just do it already!”
The Fed may move to raise rates on Dec. 16 and then again early next year, he says. “The markets are tired of the uncertainty and mixed messages. They want clarity.”
If the payroll figures for nonfarm jobs are good this month and next, rates could rise, spelling the end to the uncertainty and “annoyance” of the current situation, he explains.
Party Politics
While Republican presidential candidate Donald Trump complains about “the stupid people” running Washington, Valliere says it was not a lack of intellect but a lack of votes that meant the Republicans couldn’t stop either President Barack Obama’s health care reforms or his nuclear deal with Iran.
The good news for Congress and the American public, he says, is that Paul Ryan was picked to lead the Republicans in the House, “and we have a budget deal.” The deal includes the lifting of some spending caps, which come conservatives do not like.
“But I’m on the 50-yard line and think the budget deal eliminates uncertainty for some time,” Valliere explained. “The most powerful stock to play is tied to the Defense Department’s extra spending at Pentagon, and it should be for several years to come.”
He’s also bullish on what spending on health care research could mean for the industry.
As for the fiscal state of the country, the Washington expert says tax receipts have “far exceeded all expectations. It really shouldn’t be a surprise, since we have low unemployment and high profits.”
With the alternative minimum tax resulting in higher tax revenues for the government, the fiscal situation should be in good shape for the next three to four years, he adds. “It’s all of us [paying our taxes] and your clients!”
The budget deal means the outlook for the financial markets from Washington “is much better, and that means the federal government can go on operating versus going through a budget crisis,” he states
With Ryan’s move into the role of House speaker, Valliere does not expect immigration reform to move ahead. “He will not allow that to happen in the House,” the analyst said.
As for those pushing for reform, “I’ve never seen a coalition in favor of an issue like this,” he explained. Everyone from the Wall Street Journal to the AFL-CIO, U.S. Chamber of Commerce, Karl Rove and religious groups are pushing for it. But it is not going to happen.”
(A pro-reform stance hurt former House Majority Leader Eric Cantor, who lost his election in Virginia last year, he points out.)
As for tax reform, “Everyone has a plan,” Valliere said, but there is no consensus on the details.” Will Congress get rid of the mortgage deductions or make similar changes? “I don’t see anything happening for a few years.”
Corporate taxes, at 35%, need reform, but again there is no consensus on how this could happen. “You will hear more about this from Ryan,” who is interested in looking at the issue of profit repatriation and has suggested that this income be taxed at 6%-8%, he said.
Such a plan “could really help drug, technology and other companies … It could boost mergers and acquisitions, and more tax revenue could then go the infrastructure. Ryan … is passionate about … improving our highway system, bridges and cybersecurity,” he said.
Valliere says one of his friends told him recently, “You know the U.S. tax scene is screwed up when Canada is a tax haven.”
Another positive for the markets, he points out, is that the federal deficit is now below 2.5% of GDP and below the 50-year average of 3%: “Yes, [the debt is] $18 trillion [cumulatively] and is going up. But the annual deficit is nothing to unnerve the Treasury bond market.”
The political expert does not expect Congress to raise taxes or change the tax treatment of carried interest over the next several years.
As for entitlement reform, Ryan may push for this to happen with respect to Social Security cost-of-living adjustments, for instance, but not before the presidential elections — if his fellow Republicans have their way. “Wining in Florida takes precedence over reform,” Valliere explained.
On the Democratic side of Congress, both Bernie Sanders and Elizabeth Warren are eager to increase Social Security benefits, he says.
Big Race
“Complicating all of this is the presidential race,” explained Valliere, “and I’ve never seen anything like it: Both parties are terrified by their possible nominees!”
